In the final days of 2017, Congress passed the most sweeping overhaul of the US tax code in a generation. If you’re like many people, you were probably too busy celebrating the holidays to pay close attention to the details of the bill.
If you fall into this category, not to worry! Here are a few pointers to help you better understand some of the key changes, most of which went into effect on January 1.
- Are you employed? Under the new plan, it's likely that your income tax rate will be heading lower next year. The act keeps the seven tax brackets, but lowers most rates. Your employer will adjust your withholdings soon, so you should see a small increase in your take-home paycheck.
- Do you itemize? The standard deduction has nearly doubled – from $6,500 to $12,000 for individuals and $13,000 to $24,000 for married couples filing jointly. In many cases, you'll discover that you no longer need to bother with itemized deductions at all.
- Are you a homeowner? If so, the law also makes some big changes with home ownership and taxes. Beginning in 2018, interest will be deductible on new home loans up to $750,000. Interest on existing home loans will be grandfathered, if they were closed on before Dec. 15, 2017. The act also eliminates deductibility for interest on home equity loans and lines of credit. Lastly, the deduction for state and local income taxes and property taxes (added together) is capped at $10,000.
- Have children? If you have a desire to send your children to private or parochial schools with tuition costs, you might consider opening a 529 account or start adding more money to your existing plan. Until this year, you could only use these plans to pay for college expenses. Under the new law, you can now use money from 529 accounts (up to $10,000 annually per student) to pay for private elementary and secondary schools. Also, the act expands the child tax credit from $1,000 to $2,000.
- Pay alternative minimum tax? Under the new law, fewer people need to worry about calculating their tax liability under the AMT. The exemption is now $70,300 for singles, and $109,400 for couples.
- Own a business? Under the new plan, the corporate tax rate will decline significantly next year. Currently, the corporate tax rate is 35%, but it will drop to 21% next year. This cut in rates is designed to help small businesses, too. If you report your business profits as personal income on your tax return, there's a good chance you'll be able to deduct 20% of your business income. The new law also allows you to deduct 100% of the cost of short-lived capital investments made in each of the next five years. Therefore, it could make sense to invest in new equipment sooner rather than later.
Looking for financial advice?
As life changes, so can your financial goals. At Old National, our associates will take the time to listen and help you explore your financial options in every phase of life. Call us at 1-800-731-2265 or submit a request for an Old National banker to contact you.
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